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Refresher on Locating Missing Retirement Plan Participants and Beneficiaries

Retirement plan sponsors often need to contact former employees and other plan participants and beneficiaries in order to begin plan distributions or upon the plan’s termination. Oftentimes, the plan’s contact information for such persons is outdated. Prior to August 2012, plans could use the IRS’s letter forwarding service to locate these missing participants and beneficiaries. Since the discontinuance of that service, plan sponsors now must use a variety of other methods to try to locate these persons, including commercial locator services, credit reporting agencies, and Internet search tools. Additionally, DOL Field Assistance Bulletin 2014-01 lays out the required steps the plan sponsor of a terminated defined contribution plan must take to locate any missing participants and beneficiaries, which include sending a notice using certified mail, checking the employer’s records for more current information, attempting to contact a missing participant’s designated beneficiary, and using free Internet search tools. Additional information on… Continue Reading

IRS Proposes Nondiscrimination Relief for Certain “Closed” Defined Benefit Pension Plans

Many employers have moved away from traditional defined benefit plans, but have not completely terminated those plans. This movement may have been in the form of “freezing” participation so that new employees cannot participate or through the adoption of a new benefit formula, like a cash balance plan, where certain employees in the “old” defined benefit plan formula have been allowed to continue to earn benefits under that formula. In either case, the traditional defined benefit plan is referred to by the IRS as a “closed” plan, and the employees continuing to earn benefits are referred to as “grandfathered” employees. The IRS recently issued proposed regulations that would modify the nondiscrimination requirements applicable to these closed plans because the proportion of the grandfathered employees who are highly compensated tends to increase over time. The proposed regulations would provide temporary nondiscrimination relief where the proportion of highly compensated employees has increased… Continue Reading

Texas Supreme Court Rules on the Meaning of “Property Damage” and the “Impaired Property” Exclusion in CGL Policies

In response to a series of certified questions posed by the Fifth Circuit Court of Appeals, the Texas Supreme Court has held that (1) for purposes of the “property damage” requirement in a general liability policy, physical injury requires tangible, manifest harm, not the mere incorporation of defective components; and (2) for purposes of the “impaired property” exclusion in most general liability policies, property may be “restored to use” by “replacement” of defective parts, even if other components are damaged and replaced in the process. U.S. Metals, Inc. sold 350 flanges to ExxonMobil Corp. for use in constructing nonroad diesel units at Exxon’s refineries in Baytown, Texas and Baton Rouge, Louisiana. The flanges were installed by welding them to piping and covering them with special high temperature coating and insulation. In post-installation testing, Exxon discovered that several of the flanges leaked. Exxon decided to replace all of the flanges to… Continue Reading

Fifth Circuit Rules That Insured May Not Rely on Conclusory Expert Affidavit to Survive Summary Judgment

A recent Fifth Circuit decision has reaffirmed that an insured cannot withstand an insurer’s motion for summary judgment by presenting only an expert’s conclusory affidavit as evidence. In Stagliano v. Cincinnati Insurance Co., No. 15-10137 slip op. at 2 (5th Cir. Dec. 11, 2015), the insured plaintiffs owned 48 commercial properties around the Dallas area. The insurer defendants—The Cincinnati Insurance Company and The Cincinnati Casualty Company (together, “Cincinnati”)—issued an insurance policy covering the properties for the period from August 14, 2010 to August 14, 2011. The plaintiffs submitted a claim for hail damage to one of their properties due to a May 24, 2011 storm, and Cincinnati paid it. Over a year and a half later, the insureds submitted several other claims for property damage that they alleged came from the same storm. Cincinnati denied these claims. The insureds sued Cincinnati for breach of contract, among other causes of action.… Continue Reading

Reminder to Apply Defined Contribution Plan’s Forfeitures

Employers are reminded to ensure their defined contribution plan forfeitures are used or allocated in the plan year in which they arise and in a manner specified by the plan’s terms. Plans may permit the use of forfeitures to reduce employer contributions or to pay reasonable plan administrative expenses. Some employers find it administratively difficult to use forfeitures to offset periodic employer contributions because it may involve a manual override to the automatic contribution feed to the plan’s third-party administrator. In addition, some systems don’t have a process in place to permit only a partial offset of company contributions for a particular period in some circumstances. The IRS reminded employers about this requirement a few years ago (see here) and made the following suggestions: No forfeitures in a suspense account should remain unallocated beyond the end of the plan year in which they occurred. No forfeitures should be carried into… Continue Reading

IRS Permits Mid-Year Changes to Safe Harbor 401(k) Plans

In Notice 2016-16, the IRS announced that certain mid-year changes to a safe harbor retirement plan or to its safe harbor notice will not violate applicable safe harbor rules so long as new participant notice and election-change conditions are satisfied and the mid-year change is not one of several changes specifically prohibited in the Notice. Generally, safe harbor retirement plans must be effective for an entire 12-month plan year unless a specific exception applies, such as for a short initial or final plan year, among others. The Notice now permits safe harbor retirement plans to make certain mid-year plan design changes. If the change involves an item that is required to be included in the plan’s annual safe harbor notice, an updated safe harbor notice that describes the change must be provided to plan participants either (i) within a reasonable period of time prior to the effective date of the… Continue Reading

IRS Issues Guidance Regarding Retroactive Increase in Excludible Transit Benefits

The recently enacted Consolidated Appropriations Act, 2016 retroactively increased the 2015 limit on the monthly exclusion from income for employer-provided transit and vanpooling benefits under Section 132(f)(2)(A) of the Internal Revenue Code from $130 to $250. The IRS published Notice 2016-6 on January 11, 2016, to (1) clarify how the retroactive increase applies for 2015 and (2) provide a special administrative procedure for employers who over-withheld income taxes and FICA taxes on transit benefits provided during any quarter of 2015 and who want to make corrections on the fourth-quarter 2015 Form 941 (Employer’s Quarterly Federal Tax Return) (which is due February 1, 2016). Notice 2016-6 is available here.

Court Rules Against EEOC in Wellness Case Brought under the ADA

The EEOC brought civil actions against three separate employers (Orion Energy Systems, Inc.; Flambeau, Inc.; and Honeywell International, Inc.) in 2014 for alleged violations of the Americans with Disabilities Act (“ADA”) by their wellness programs. On December 30, 2015, a federal district court in Wisconsin ruled in EEOC v. Flambeau, Inc. that Flambeau’s requirement for employees to complete a health risk assessment and biometric screening in order to be eligible to enroll in the employer’s group medical plan fit within the ADA’s bona fide benefit plan safe harbor because it was a term of the plan for purposes of underwriting, classifying, and administering risk. The court determined the wellness program could be construed as part of the plan since it was a condition of enrollment, despite the fact that the wellness program was not described in the plan’s summary plan description. The application of the safe harbor was similar to… Continue Reading

Additional Guidance Regarding Determination Letter Program Changes

Effective January 1, 2017, the five-year remedial amendment cycle for individually designed plans under the IRS determination letter program will be eliminated. The IRS recently announced additional revisions to the determination letter program in anticipation of this elimination. Controlled groups and affiliated service groups that previously made a Cycle A election are permitted to submit determination letter applications during the Cycle A submission period ending January 31, 2017; expiration dates on determination letters issued prior to January 4, 2016 are no longer operative; and employers that want to convert an existing individually designed plan into a defined contribution pre-approved plan and apply, if otherwise permissible, for a determination letter may do so between January 1, 2016 and April 30, 2017. Notice 2016-03 can be found here.

IRS Extends Affordable Care Act Reporting Deadlines

The IRS recently released Notice 2016-4, which extends the deadlines for filing certain information reporting returns required under the Affordable Care Act. In particular, the due date for employers to furnish Forms 1095-C to individuals to report employer-provided minimum essential coverage (and offers of such coverage) has been extended from February 1, 2016 to March 31, 2016. Similarly, the deadline for insurers (and self-insured employers with fewer than 50 full-time employees) to provide Forms 1095-B to individuals receiving minimum essential coverage has been extended to March 31, 2016. Furthermore, the deadline for submitting the required transmittal forms to the IRS (i.e., Form 1094-C for employers and Form 1094-B for insurers and small self-insured employers) has been extended from March 31, 2016 to June 30, 2016 (if filing electronically) and from February 29, 2016 to May 31, 2016 (if not filing electronically). Notice 2016-4 is available here.

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